State budget designed to overcome economic crisis

Finance Minister Constantinos Petrides said the 2021 state budget will increase by EUR 742 mln, or 10.6%, compared to last year, despite the coronavirus pandemic’s economic squeeze.

Addressing the House plenary on Thursday, Petrides called upon MPs to pass the budget for the best interest of the country.

“If the budget is not voted in, no new support packages can be handed out to employees and companies, no social benefits can be given, and the health system will not be able to function,” warned Petrides.

He said the 2021 budget is tabled under the worst economic circumstances since the 1974 Turkish invasion.

Despite the significant deterioration in economic indicators, international credit rating agencies have not downgraded the Cypriot economy.

Macroeconomic forecasts on which the 2021 budget is based as well as three-year fiscal planning, the economy is expected to shrink by -5.5% of GDP in 2020 better than the - 7% initially forecast in April.

“In 2021 the economy is expected to enter a recovery path with growth being close to 4.5% GDP while the unemployment rate for 2020 is estimated to have an upward trend from 7.1% in 2019.”

Unemployment is expected to fall back to 7% in 2021 and 6% in 2022.

Petrides said the forecasts are significantly better than the ones for most EU countries, and incomparably better than other European countries that rely on tourism.

There will be a deficit equal to 4.5% of GDP for 2020 from a 1.7% surplus recorded in 2019, while marginal deficits are expected in the coming years, amounting to 0.7 % of GDP in 2021 and 0.6% in 2022.

“Public debt is expected to increase to 115% of GDP in 2020 from 95.5% in 2019, to follow a downward trend from 2021 where it is projected to fall to 111%, due to the expected economic recovery and improved fiscal indicators.”

The Minister said the 2021 budget was prepared with five main objectives including the continuation of emergency measures to support employees and businesses affected by the pandemic.

Petrides said the second strategic goal is to strengthen the welfare state.

He said the 2021 budget is the largest budget in the history of the Republic in the field of Health, which now represents 9.63% (EUR 1.01 bln) of the total budget. A percentage much higher than it was a few years ago.

Compared to last year, there is an increase in health sector expenditures by EUR 55 mln. The third strategic goal is to enhance the country’s defence.

“Taking into account the geopolitical instability in the region and the continuous and growing challenges the country faces, the 2021 budget includes significant increases in spending on the defence sector”.

He said that the country’s defence budget is increased by EUR 71 mln or by about 20%.

The fourth strategic goal is to help a rapid recovery after the end of the pandemic, and the sustainable and dynamic growth with EUR 634 mln for the implementation of the National Recovery and Sustainability Plan.

Petrides said the budget strengthens entrepreneurship with EUR 400 mln between 2021-2027, which is almost three times higher than the previous programme.

It also aims at green growth with more than 50 development projects related to the circular economy, waste and water management, biodiversity conservation.

It is the largest budget ever allocated to e-government and digital transformation with projects exceeding EUR 140 mln as well as promoting research and innovation.

The fifth goal is to push for reforms from the redesigning the island’s local administration model, to digitalising government services.